Will FSA Leave Consumers out in the Cold

In October the National Consumer Council (NCC) and the Personal Investment Authority (PIA) organised a seminar on the role of consumers in the new world of a single, all embracing, Financial Services Regulatory Body (FSA). No less than eighteen of the country’s most influential consumer groups, including NfCG and several federated Groups, took part.

By a strange coincidence the Treasury announced the names of three FSA Board members and four non-Board directors on the day of the seminar. This seems to have been a surprise to everybody and causes concern, says the NCC, because the top team has been appointed without any outside consultation.

NCC and other consumer groups, argue that, since individuals will increasingly have to make their own financial provisions these individual consumers will equally have growing and very personal interest in financial services regulation and its effectiveness. The danger is that, without commitment throughout the new regulator to looking after all consumers interests from the largest to the smallest, too great an emphasis will be placed on policing the big money, glamour end of the finance industry. This could leave the protection of ordinary consumers out in the cold.

The protection of ordinary consumers had been inadequate before, pointed out David Hatch, NCC Chairman, when he opened the seminar, and he gave as examples the mis-selling of pensions, home income plans, BCCI and the overselling of endowment mortgages.

"We need to know that representation of the consumer interest permeates the new body from the top" he told the seminar. "This means proper representation at Board level and a management structure that does not marginalise consumers into the customer relations department".

What was clear from the seminar was the need to apply as much pressure as possible in as many directions as possible in order to achieve something akin to the PIA Consumer Panel, but for the whole spectrum that the FSA will be responsible for. This could result in the ordinary consumer of financial products being better protected than now - but it is still a long way off.

Other points that came out of the seminar included:

• the new regulator’s Board must be appointed following the Nolan principles of open recruitment and should consist of public interest appointments with a majority with experience of consumer affairs.

• there must be a new consumer body, able to act independently of FSA, and this would require staffing and resources to allow it to address the wide FSA remit.

• the new regulator should have flexible powers to enable it to deal with all matters in the financial sphere that could disadvantage grass roots consumers, particularly new products and new consumer problems.

• the regulator should be able to bring within its ambit voluntary codes of practice (for instance the BBA code of Banking Practice) where they are found to be inadequate in protecting consumers.

• FSA should have at its disposal a range of sanctions - including banning specific products and advertising, grounding a firm’s sales force and fining senior management, as well as naming, shaming and fining companies and even closing down firms.

• the new regulator must develop a network of regional representation and local links to ensure that it is approachable and able to respond quickly to emerging issues.

One of the purposes of the seminar was to help consumer bodies develop their own policies and that is what must now follow.

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